How UK Startups Can Protect Their Intellectual Property
By Guya Santomauro, Last updated: 2023-01-18 (originally published on 2019-08-07)
Entrepreneurs in the contemporary market focus are known to focus their attentions on mainly economics rather than the equally crucial legal aspects of their company. We will discuss and analyse the contemporary relevance of intellectual property (IP) and its impact and relevance to startup companies.
Ordinarily, startups are small in size and initially of little economic value. However, startups provide the perfect opportunity for individuals to launch an innovative business idea in today’s contemporary market. At first, while creating a business, there is a multitude of factors to consider; from branding to targeted consumers and markets. An important factor is considering the appropriate legal documents needed and determining a suitable type of IP protection. These factors are incredibly important as a considerably well organised IP strategy determines whether a company succeeds or fails.
Startups are composed of unique and distinct legal rules, which if followed correctly ensure the success of a company. Failing to provide mission-critical legal documents can lead to the downfall of the company. Thus, it is of the utmost importance that entrepreneurs take the necessary legal precautions (through legal documents) to legally protect their business. By doing so entrepreneurs ensure the wellbeing of their company.
These legal documents are split into seven distinct categories:
1.the article of incorporation,
4.operating agreement (founders agreement),
7. offer letter and shareholder agreement.
IP protection makes the difference between making or losing money. This is demonstrated by the Alexander Graham Bell case, a name most people will be familiar with from their school days. The company patented a telephone model only a few hours before a rival competitor and this ensured his victory over another. Without the IP protection granted by the WIPO, Alexander Graham’s company would be known as the company who nearly made the telephone, or more likely , not known at all. With the fast moving technology today, IP protection is more important than ever before.
The protection provided by intellectual property depends on the underlying subject matter. Intellectual property is, therefore, a vital tool that helps secure market shares by creating intangible property rights. These rights shield companies from competitors and ensure exclusive rights over a monopoly, for a certain amount of time. If Apple, the well known technology company, had not registered its trade mark, other companies would be granted the legal freedom to use it.
Why is this relevant?
Because an entrepreneur invests time, energy and money in the production of software (for example) and IP provides exclusionary rights over the creation of the software, thus this prevents and prohibits third parties from using and exploiting someone else’s ideas or innovations. Therefore, IP protection grants the company exclusive rights over the software. Granting companies like Apple an indefinite monopoly over the market.
According to the laws of the United Kingdom, the owner or owners of the IP are those who either created the product or who will own the product, as the creator of the product develops it as part of their duties at work. If X, an employee for Y’s company, modifies and improves a computer software as part of his job, the computer software will automatically be owned by Y’s company. However, to not arouse any doubts, it would be sensible to include a clause in the employee’s contract specifying that any creation made by them will be owned by the company. If the creator does also have a special obligation to further the “commercial interests” of a company in question then the company is still going to own the IP, not the creator. Lastly, the IP will be owned by the company if the creator signed an agreement to change the ownership of the IP.
Any business that uses a name, logo, brand or design, or a new product or process is strongly advised to use trademark, design or patent protection respectively. The UK IP Office (UKIPO) does provide free training, case studies, IP health checks and advises companies on which IP is best suited for their business. If the UKIPO is not capable of providing the right advice to the company, they will redirect the company towards a qualified attorney.
Once the legal position is determined, and it is clear who owns the IP, and, to what governmental infrastructure a company can ask for help, it must then be put into writing as to the chain of ownership of the IP. It must be clear in an assignment document who the owner of the IP is, and what ownership other co-founders of the company have. This document must be signed by all parties and in some situations even sealed. This legal document is cheap, quick to make, and most importantly will protect the IP owner from future ownership challenges.
If however the IP is created by an external consultant without a specific assignment, then they will be the owners of the IP. Thus, your logo designer might, for example, prohibit the future use of a logo he/she created. Thus, it is strongly advised to make workers sign a simple assignment document, to move the ownership of the logo in this situation to the company that commissioned the work.
When an IP owner decides to sell their IP ownership, the IP owner should make the seller sign a simple assignment that clearly states that once X amount of money is paid to Y by a determined amount of days, then the ownership will automatically be transferred to the buyer. This document provides absolute clarity and allows the owner of the IP to sell his ownership on his terms.
If you want to extend your ownership of the IP to other countries outside the UK, other countries will require proof of ownership as the T&C will not be considered valid nor acceptable. As such, it is of extreme importance that all relevant legal documents are in possession of the company, to be used for future disputes as proof.
It is important to highlight that if you are the owner of a startup, you individually will not own the IP, but it will be owned by the company. If you decide to sell your company, once sold, and the IP with it, the owner will be giving up any rights he ever had on the IP. All rights the owner once had will disappear automatically and be transferred to the buyer of the company.
In situations where no company is set up, it is a good idea to have joint ownership. However, it’s also worth noting that joint ownership can create problems and cause future issues. As such, it is suggested to have the IP owned only by one person and then create an agreement, in the form of a written contract agreement on how the IP may be used.
If the owner of a company cannot get the ownership of the IP transferred to the company, he/she must get a license, through a Software License Agreement and or a Trademark License Agreement. A license is a legal written contract, signed by the owner, and authorises the licensee to use the IP in the way specified in the agreement.
The final and most important aspect when dealing with IP is disclosure
It is fundamental that the inventor of an IP does not disclose the invention in any shape or form to the general public. If such events take place it is very unlikely that the IP owner will be granted a patent. Keep in mind that verbal disclosure can destroy your business. It’s recommended to make all those involved with the IP sign a Confidentiality agreement to prevent the disclosure of information. As demonstrated and highlighted by the courts in the case of Synthon BV v Smithkline Beecham Plc.
Keep in mind that this article provides a general guide to the subject matter of startup companies in the United Kingdom and the importance of protecting IP.
This article does not constitute legal advice.
The opinions expressed in the column above represent the author’s own.